Competitive Juices FlowingIt's important to understand who your opponents are on the field of battle. Sports and war metaphors abound, because they are consistent with what you are going up against. Yes, you are up against Mr. Market, but your rivals are also other people buying and selling stocks. They, too, are looking to produce positive returns.
Watch a pro football game, and it's obvious the guys on the field are far faster, stronger and more willing to bear and inflict pain than you are. Surely you would say, 'I don't want to play against those guys!' Well, 90% of stock market volume is done by institutions, and half of that is done by the world's 50 largest investment firms, deeply committed, vastly well prepared -- the smartest sons of bitches in the world working their tails off all day long. You know what? I don't want to play against those guys either.That's a brutal and, in my opinion, absolutely spot-on observation. The institutions Ellis refers to are mutual funds, hedge funds, charitable trusts, insiders, program traders -- and all of their professional traders and portfolio managers.
Lawyers, Docs & MoneyConsider this: If you have anything more than the simplest of tax forms, what do you do? You pay a professional to do your taxes. If you are accused of a felony, you get the best lawyer you can. Need heart surgery? You go to the very best hospital you can afford. I put financial management right up there as a profession with medicine, law and accounting. Yet many people never even hesitate to take their hard-earned money, open an account and start trading. Worse still is how nonchalantly these accounts get treated. Do you ask your friends at cocktail parties what's the best way to crack open a chest cavity, or which rib spreader they like best? No, you find the best heart man you can, and let him try to save your life. It should be the same in the market, but it's not. People have committed months -- if not years -- of hard-earned income to investments based on cocktail party chatter, chat board rumors or astrologers. That's not what you call extensive due diligence. Idle rumor mongering in an online chat room is not the equivalent of hardcore, in-depth research.
Knowledge vs. WisdomJust because someone hands you a bat doesn't mean you can hit a home run off of Roger Clemens (yes, another sports metaphor). The explosion of Web-based market data may have given everyone similar tools, but it did not grant them an equal ability to use those tools. There is a huge difference between information and knowledge, and between fact and wisdom. I believe that many people can compete on the Gladiatorial trading fields. It requires hard work, discipline, intelligence and a willingness to learn things that are counter-intuitive. In coming columns, I hope to show you many of the tools you will need to succeed on that field of battle.
|1.||Expect to Be Wrong||2.||Your Fault, Reader|
|3.||The Wrong Crowd||4.||Bull or Bear? Neither|
|5.||Know Thyself||6.||Prepare for Battle|
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Apprenticed Investor series